| From: | Stephen Smith, Prof. <stephen.smith@mcgill.ca> |
| To: | ODG <obligations@uwo.ca> |
| Date: | 13/11/2014 22:43:13 UTC |
| Subject: | RE: SCC on Good Faith in Contracts |
The decision has indeed been hailed in the Canadian press as finding a general duty of good faith in contracts, but (and with all respect to my namesake down the hall) it does not exactly say that.
As para 33 below indicates, what it says is that good faith is a ‘general organising principle’ of Canadian contract law. So far as general
duties are concerned, the only such duty that the Court finds is a duty of ‘honesty’ (see para 73 below). The court explains this duty as one of various specific duties that are explained by the organising principle of good faith—but it does not say
that the principle itself is a general duty. To the contrary, after explaining in detail the various arguments made in favour of a general duty of good faith and describing the various jurisdictions that have adopted such a duty, the Court explicitly limited
itself to finding (merely) a general duty of honesty.
The duty of honesty, at least as understood by the Supreme Court, is much more limited than a general duty of good faith. As noted in para 73 below, it only requires that ‘parties must not lie or otherwise
knowingly mislead each other about matters directly linked to the performance of the contract’. The existence of this duty provides plaintiffs with arguments and remedies not found within the law governing fraud and misrepresentations
(primarily because reliance is neither a part of the cause of action nor the measure of the remedy—the latter is contractual), but it does not go much beyond that protection and is of course much more limited in other respects (primarily in that it requires
fraud-like intent). The Court explicitly refused to find that the duty of honesty encompassed a duty of disclosure.
Steve
From: Lionel
Smith, Prof. [mailto:lionel.smith@mcgill.ca]
Sent: November-13-14 3:48 PM
To: ODG
Subject: SCC on Good Faith in Contracts
Today the Supreme Court of Canada held that there is a general duty of good faith in contracts in common law Canada:
[33] In my view, it is time to take two incremental steps in order to make the common law less unsettled and piecemeal, more coherent and more just. The first step is to acknowledge that good faith contractual performance
is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance. The second
is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.
[73] In my view, we should. I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly
linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance.
Lionel